Centre puts GST rider on states

In a rebuttal of states’ allegations that the Centre did not keep its commitment on compensating loss of Central Sales Tax revenue, the finance ministry on Tuesday said it cannot go on dishing out money to states if they were not willing to move ahead with the introduction of the Goods and Services Tax (GST).

“CST (Central Sales Tax) compensation is being taken as an excuse by the states (to delay GST). The government cannot keep on paying the compensation endlessly if the states don’t come on board for GST,” R S Gujral, secretary, finance, said on Tuesday at a post-Budget seminar organised by industry chamber Ficci.

The compensation was originally planned only for three years and the period got over, he said.

Ties have never been too harmonious between the Centre and the states on the issue of GST and CST compensation, but recent developments have made the matter worse. In the past, the two sides have always tried to resolve their issues through discussion.

This time, neither is not willing to soften stance on the issue of CST compensation. In a letter to the states in January, the finance secretary had said the compensation paid so far by the Centre should be considered as full and final and no further CST compensation would be given. The letter came as a shock to states and a meeting of the empowered group of state finance ministers was called hurriedly to discuss the matter.

CST, a tax on inter-state movement of goods imposed by the Centre but collected by states, was reduced from four to three per cent in 2007-08 and further to three per cent in 2008-09 after the introduction of value-added tax. The states asked finance minister Pranab Mukherjee to fully compensate them for losses or increase the rate from two to four per cent.

“There is at present no proposal to raise the CST rate to four per cent,” S S Palanimanickam, minister of state for revenue, said in the Rajya Sabha on Tuesday. Against CST claims of Rs 19,000 crore given by the states for 2010-11, the Centre released only Rs 6,393 crore this year even though it had made a Budget provision of Rs 12,000 crore. Due to delay in the roll-out of GST, states have asked for compensation for 2011-12 also. In the Budget for 2012-13, the finance ministry made a provision of only Rs 300 crore.

Expressing his anguish over this “meagre” provision, the empowered committee’s chairman Sushil Modi said the Centre was ignoring states. “There was no mention of increase in CST rate or a timeframe for bringing in GST in the finance minister’s speech. It means GST is now in limbo,” added Modi, who is also the deputy chief minister of Bihar.

Gujral, however, said the Centre was moving ahead with GST preparations.

The GST Constitutional Amendment Bill is being studied by a Parliamentary Standing Committee, but the structure of GST network will be operational by August, he said.

Later in the day, Standing Committee on Finance Chairman Yashwant Sinha said the panel would try to finalise its report on GST Bill at the earliest.